Coury, T. and Sciubba, Emanuela (2010) Belief heterogeneity and survival in incomplete markets. Economic Theory , ISSN 0938-2259.Full text not available from this repository.
In complete markets economies (Sandroni in Econometrica 68:1303–1341, 2000), or in economies with Pareto optimal outcomes (Blume and Easley in Econometrica 74:926–966, 2006), the market selection hypothesis holds, as long as traders have identical discount factors. Traders who survive must have beliefs that merge with the truth. We show that in incomplete markets, regardless of traders’ discount factors, the market selects for a range of beliefs, at least some of which do not merge with the truth. We also show that impatient traders with incorrect beliefs can survive and that these incorrect beliefs impact prices. These beliefs may be chosen so that they are far from the truth.
|Keyword(s) / Subject(s):||Incomplete markets, market selection hypothesis, belief selection|
|School or Research Centre:||Birkbeck Schools and Research Centres > School of Business, Economics & Informatics > Economics, Mathematics and Statistics|
|Date Deposited:||28 Jan 2011 14:53|
|Last Modified:||17 Apr 2013 12:18|
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